The Underappreciated Externalities of a Functional Odious Debt Doctrine

Abstract

The Odious Debt Doctrine has limped along in the legal imagination for over 100 years and by some estimations even since Aristotle. In recent years, and particularly in recent months, legal theorists and practitioners have attempted to define the contours and details of this highly controversial and undeveloped doctrine.

This Article looks at the generally agreed characteristics of the odious debt doctrine and considers some of the spill-over effects and externalities that would ensue if this doctrine were ever made operative. Many commentators have noted the increased costs of borrowing and lending that would result from the doctrine. Some view this increased cost as detrimental to borrowers and lenders alike. Others view both the doctrine and the increased costs associated with it as mechanisms to curtail the odious practices of brutal dictators and despots. Both views depend on the underlying, though usually unstated, assumption that debt is the sole finance vehicle for states. This is simply not the case.

States, like corporations, are able to raise funds through a wide variety of other methods. This Article argues that although debt can be crippling for developing countries and merits the attention it has received, alternative methods may in fact be yet worse. Despotic leaders facing great difficulty in accessing private or public loans may rely more heavily on alternatives like land concessions, assignments and outright sales of valuable state and national property. This turn may have both short and long term detrimental consequences. In the short term, the humanitarian law and human rights violations that have led to a characterization of a given regime as despotic or odious, which previously may have been funded by loans that would now be termed odious debt, may now be funded by the pillaging of that nation's natural resources, property and other valuable assets, all of which will be difficult or impossible to recover upon regime change given the current state of international law as it pertains to state succession.

This possibility established, the Article then investigates the contents of the odious debt doctrine to query what characteristics make debt odious rather than simply onerous. It then seeks to establish that there may be little distinction between those characteristics as they apply to debt and as they apply to other types of financial obligations. Finally the Article posits that if this is the case, there may be valuable lessons to be garnered from the odious debt doctrine for application to other types of transnational investment.

Keywords: odious debt, debt, international law, human rights, succession, international finance